Indonesia’s Credit Rating: A Positive Reflection of a Positive Political Development

11/24/2009

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The Consulate General of the Republic of Indonesia in New York, attended The American Indonesian Chamber of Commerce (AICC) Luncheon that was held in 24 November 2009. Themed Indonesia’s Credit Rating, the luncheon featured John Chambers, Managing Director, Sovereign Credit Ratings, Standard & Poor’s (S&P) as the keynote speaker.

A credit rating is a benchmark instrument to review the performance of a country and the associated risks within a country’s bond transactions.

In his view, Chambers revealed that Indonesia’s credit rating could still go up if the government would make adjustments to its fuel subsidy scheme into a more effective and indiscriminately beneficial to its people. According to chambers, the flow of subsidy could subtract the government’s fiscal account and burden its budget. Even so, the development of Indonesia’s political situation could be the very foundation of the reform of structural, debt management, and the fiscal prudence that was reflected positively in Indonesia’s credit rating.

According to Chambers, there are a few criteria that serve as a milestone in determining a country’s credit rating. Those criteria are the domestic political condition, domestic and foreign economic policy foundations, and external factors.

Chambers explained that the political and national policy condition of a certain country could decide its credit rating, since the political condition—be it directly or indirectly—could influence the investor’s perception of uncertainty. Moreover, the investors have to be convinced in order to invest, by implementing political policies that are conducive for economic activities. In Indonesia’s case, Chambers welcomes the ongoing democratization process thus the check and balances system became even more firm.

The next factor mentioned by Chambers is the economic structure. Chambers explained that the economic structure was determined by a few elements namely the Gross Domestic Product (GDP), the prosperity rate, the people purchasing power, and per capita income. Aside from that, Chambers also made it clear that Indonesia’s credit rating was also determined by a few factors such as its transparency in corruption eradication, public spending effectivity, and per capita economic growth.

According to S&P’s report that was released in 11 November 2009, Indonesia’s current credit rating was ranked “BB-/Positive/B” for Foreign Currency category, “BB+/Positive/B” for Local Currency category, and “axBBB+/--/axA2” for ASEAN Regional Scale category.

In general, Indonesia’s credit rating has trend to keep improving, considering in 1998 Indonesia was still in economic crisis, have placed “CCC+”. The position would then rank up into “B-” in the year 2000, and during 2004 into “BB.”

As the positive attitude grow and seeing the vast dimensions which became S&P’s considerations in determining a country’s rating, it would then require a more firm cooperation among the stakeholders in order to keep or even improve Indonesia’s credit rating. (Source: KJRI New York).